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22 August 2011

FN: Political mastery rules central bankers


The independence of central banks can now be seen as nothing more than a convenient fiction. If there were any residual doubt, witness the performance of the European Central Bank last week.

The list of actions taken by ECB president, Jean-Claude Trichet, against his initial wishes is long and growing. Two years ago the idea that the ECB would openly buy government bonds in the secondary market and accept non-investment grade securities as collateral was unthinkable. Last week it could not buy enough of them to stave off the latest round of the eurozone crisis. His actions have clearly been influenced by the fiscal deterioration in the EU periphery. Who knows what they will have done by the time the euro crisis is over. The ECB balance sheet is fast becoming a repository for all EU government debt. If Germany does not pick up the tab, they will have no option but to monetise it.

The illusion that central bankers set their own agenda no longer fools the audience. The sleight of hand is just not fast enough, although it might have been a good trick while it lasted.

Full article (FN subscription needed)



© Financial News


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